Net Profit

1
Part 12

• Net Profit

2
Starter

• What is meant by gross profit?
• How do you calculate gross profit?
• What do we mean by direct materials? Give an
  example.

3
Lesson Objective

• To be able to identify different types of
  spending.
• To be able to define net profit.
• To be able to calculate net profit from a
  formula.

4
Activity 1

• Using the following words, please complete the
  blank sheets you have been given.
• You need to match the correct word with its
  definition!

Direct labour
Expenditure/expenses
Direct expenses
Fixed Assets
Direct Materials
5
Some key terms

• Direct Materials what we use to make a product.
• Direct labour the wages of the person making
  the product.
• Direct expenses Value Added Tax (VAT) which we
  have to pay on top of our purchase price.
• Expenditure/expenses things we pay for as
  day-to-day running costs, but we have nothing to
  show for it e.g. rent, insurance, training and
  advertising.
• Fixed Assets Things we buy and intend to keep
  for many years e.g. premises, vans and machines.

6
Activity 2
L/O To be able to identify different types of
spending.
Expenditure/expenses Fixed Assets
Tax for car Petrol Heating Lighting Postage Rates Cleaning Costs Supervisors Wages A new car A warehouse A computer Equipment Furniture
7
Net Profit

• The money made from selling a product after all
  costs (expenditure) have been deducted.
• In order to work out net profit, you first of all
  work out the gross profit, and then deduct any
  other expenditure involved in making or selling
  it.
• Net profit Gross Profit - Expenditure

8
Activity 3
L/O Calculate Net Profit from a formula

• Using the following information, draw up a
  statement like on the example before
• A business has sales of 25,000 which costs
  12,500.
• It had to pay out rent of 1000, insurance at
  500 and a salesmans wages at 1000.

9
Activity 4
L/O Calculate Net Profit from a formula
10
Activity 5
L/O Calculate Net Profit from a formula

• 1. Cost of sales 2525 3500
• 2. Gross Profit 19250 - 6025 13225
• 3. Total Expenditure 550 400 880 1830
• 4. Net profit 13225 - 1830 11395

11
Recap
L/O To be able to identify different types of
spending. To be able to define net profit. To
be able to calculate net profit from a formula.